ImClone bid at 102.75 even after terms tightened; Oscient emerges; Albertson's at bat; Conseco Thursday

By Ronda Fears

Nashville, May 3 - With a new ImClone Systems Inc. convertible up for grabs, dealers noted that biotech issues were broadly mixed on name-specific news. The new ImClone issue was well over par in the gray market despite tightened terms, and the healthy response lent itself to an upsizing by 25%.

In addition to the ImClone deal, price talk surfaced on a small $75 million deal from Oscient Pharmaceuticals Corp., and Albertson's Inc. had its $1 billion mandatory on tap after Monday's close. Later this week, Conseco Inc. is now expected to revive its mandatory offering, too.

While the market's focus was on new deals, peripherally everyone was watching with bated breath to see what might happen with interest rates this week. There was no inkling gleaned from the Treasury market, however, as bonds were straddling a virtually unchanged position ahead of the FOMC meeting Tuesday, with some trepidation about nonfarm payroll data on Friday as well.

"You could say we are whistling in the dark, as if we haven't a care in the world," said a buyside trader.

"We just didn't see a lot of markets today. It was so quiet, it was sort of spooky. The markets are spooked a little, I guess. No one really thinks they are going to raise rates this time but the possibility of a surprise seems higher. So, unless there was a reason to trade something, you're just holding on until after the Fed word."

In general, dealers said airlines were easier as oil prices spiked to above the $38 mark but there were few bidders for that paper, and several telecoms were weaker. Nortel Networks Corp. led the telecom pack lower, still spiraling after firing its top executives last week amid another round of financial restatements.

ImClone trades at 103 in gray

Controversy riddled ImClone returned to the convertible market to tap convertible investors and got a healthy, warm welcome. Negatives for the issue were history for the most part, one buyside trader said, while positives included commercialization of its cancer drug, Erbitux.

At first, the New York based biotech launched a $400 million quick-sale marketing effort. The 20-year convertible notes were talked to yield 1.5% to 2.0% with a 35% to 40% initial conversion premium, with pricing after Monday's close.

The issue traded at 3 points over par in the gray market, a buyside trader said.

Then around mid-session, the deal was upsized and guidance squeezed to 1.375% to 1.5% on the coupon and to 38% to 42% for the premium.

It still traded well over par, with one trade at 102 after the guidance was tightened, the trader said. At the close, the issue was bid at 2.75 points over par.

ImClone deal opinions vary

There were a sundry of subjective assumptions that skewed the view on the new ImClone deal, said a buyside trader, who thought it looked expensive even at the original terms.

"Oh yeah, the credit is trading tight, but everything is. When the market snaps back this will smack you in the face," the trader said.

Sellside analysts were putting the credit spread on ImClone at about 300 basis points over the five-year Treasury note and modeling the new deal with a stock volatility input of 40% to 45%, but the results widely varied.

One sellside analyst put the issue at about fair value, or 0.5% cheap, at the midpoint of the new price talk, using a credit spread of 300 basis points over Libor and a 40% stock volatility.

Another put it about 3.5% cheap at the middle of the new guidance, using a credit spread of 300 basis points over Treasuries and a 45% stock volatility.

Deutsche Bank Securities analysts put it 2.86% cheap at the middle of the original price talk, using a credit spread of 300 basis points over Libor at a 40% stock volatility.

Waksal, Stewart history now

Troubles surrounding ImClone "are history now," as one of the buyside traders put it, noting that in March, Imclone got a nice boost of confidence on reports that investor Carl Icahn has been buying and now holds a 6.9% equity stake in the company.

The ImClone infamy goes back to New Years Eve 2001 when the company announced that it had been given a setback in its effort to procure U.S. Food & Drug Administration approval for the cancer drug Erbitux, which ultimately received FDA approval earlier this year.

Scandals involving ImClone stocks sales before the public announcement resulted in federal charges against former ImClone chief executive officer and founder Sam Waksal and his friend Martha Stewart, the celebrity homemaker. Waksal was convicted last year in connection with the situation and is serving a federal prison term. Stewart was convicted in March and is due to be sentenced June 17.

Last week, ImClone posted a first quarter profit of $62.7 million, or 76 cents a share, versus a net loss of $34.8 million, or 47 cents a share, in first quarter 2003. Revenue totaled $109.6 million, up more than fivefold from $19.6 million as Erbitux sales kicked in.

Imclone 5.5% loses 2 points

The old ImClone convertible, the 5.5% due 2005, lost 2 points on pressure from the decline in the shares as a result of hedge funds shorting the stock to buy the convertible. There also was some pressure from the likely call of the issue with proceeds from the new deal.

ImClone, based in New York, said it would use proceeds from the convertible sale for working capital and general corporate purposes, including the possible repayment of debt. The 5.5% convertible is a $240 million issue that priced during the biotech capital-raising craze in the convertible market in February 2000.

The ImClone 5.5% convertible was quoted at 121.25 bid, 121.75 offered with ImClone shares at $66.

ImClone shares were down $1.21 before the market opened Monday, due to the convertible news. But the stock closed off just 20 cents, or 0.3%, to $66.68.

Buyers line up for Albertson's

Albertson's jumbo mandatory also was bid higher in the gray market as it prepared to price after the close.

The three year non-callable issue - talked with a dividend of 7.25% to 7.75% and initial conversion premium between 20% and 25% - traded at 0.35 point over par ($25) and closed bid at 0.3 point over with the offer hanging at 0.35 point over.

Albertson's shares ended Monday down 30 cents, or 1.28%, to $23.06.

The Boise, Idaho-based grocery chain also is selling $1 billion of common stock.

Proceeds are earmarked to finance the $2.1 billion cash portion of the $2.5 billion acquisition of Shaw's stores from J Sainsbury plc, or to repay commercial paper borrowings used to fund the purchase. The acquisition was announced in mid-March.

Albertson's expects the Shaw acquisition to be accretive to 2004 earnings and, as a result, boosted its annual earnings guidance from continuing operations to $1.40 to $1.50 per share from the previous forecast of $1.30 to $1.40 per share.

Conseco deal seen Thursday

Buyside market sources said Monday that, as suspected, the Conseco mandatory would price after the market close Thursday following the insurance concern's earnings.

Conseco on Friday postponed the $500 million deal "indefinitely," according to sellside sources close the deal, as the company issued an earnings warning.

Conseco is scheduled to report earnings before the market opens Thursday.

The mandatory originally was due to price after the market close last Wednesday with a 5.75% to 6.25% dividend and 18% to 22% initial conversion premium. The price talk, which dated back to April 15 when the deal surfaced, was tightened last Thursday to a 5.5% dividend with the premium seen at 22%, according to a buyside source.

Sources were unsure where the deal would price this week, however.

Proceeds from the new mandatory are earmarked in part to take out the convertible preferred that was issued as part of Consco's bankruptcy exit plan last fall.

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